We are thrilled to announce our incubation partnership with Contango, alongside the early-stage venture capital (VC) firm dlab. Read on to learn how we supported the incubation of Contango – a new paradigm in the decentralized finance (DeFi) space that serves as a decentralized exchange (DEX), offering expirable futures without order books or liquidity pools.

About Contango

Contango is a new-age DEX that offers DeFi traders expirable futures without order books or liquidity pools. When a trader opens a position, the protocol borrows on the fixed-rate market, swaps on the spot market, and then lends back on the fixed-rate market. Contango offers physical delivery and minimal price change for large trades.

Contango Successfully Closed its Seed Round

We collaborated with dlab and the venture decentralized autonomous organization (DAO) and Alpha Ventures DAO, to structure the cap table during the raise. We congratulate the entire Contango team for securing $4 million in seed round investment, for its present and future development. The seed round was led by ParaFi, with participation from incubators Alpha Venture DAO and dlab, along with some industry-leading investment funds, like Coinbase Ventures, Spartan Group and trading firms Cumberland, GSR, Amber Group, and CMS.

Contango is the ONLY DeFi protocol that enables trading expirable futures

Crypto Derivatives Market Cap

Source: jumpcrypto.com

Background on Contango’s Incubation

The ABAG and dlab teams began collaborating with Contango in 2021. The Contango team began experimenting with on-chain expirable futures in 2021 and developed a minimal viable product (MVP) called Vanila Protocol to further explore this technology. After several meetings and having established the evident potential of the protocol, it was clear that there was a mutual desire for cooperation between ABAG and dlab to nurture Contango.

ABAG's Role in the Incubation Process

We provided the initial funds to kickstart Contango's development through our grants program – led by our Investment Research Lead, Boyan Georgiev – and participated in a pre-seed investment round.

“Contango has a talented and passionate team, committed to the protocol's vision. The technology they are developing has the potential to revolutionize the way we trade futures in the DeFi space. We are excited to see what they will achieve in the coming months.” – Boyan Georgiev

We assisted them on a weekly basis along with the dlab team to overcome the roadblocks that Web3 founders usually encounter on their path to a successful launch.

Our focus was to assist the team with fundraising, legal, business development, technical and strategic advice. In addition, we provided access to our broad network of industry partners and investors. Overall, it was an amazing opportunity for all of the involved teams to support the early stages of a visionary project like Contango, that will enter a currently untouched market segment.

Moving forward we will continue to support Contango and help nurture the project’s growth  – we hope our collaboration helps further enhance and scale the protocol. Currently, our portfolio company Stela Labs is performing an audit of the protocol’s code.

The Market Potential of Contango’s Solution

Contango possesses great potential, as it can capture a growing market with a new paradigm – trading of expirable futures. The volume of derivatives traded on centralized exchanges (“CEXs”) exploded in 2021, but is still dominated by perpetuals – instruments that have no settlement date and a floating interest rate (funding). In addition, most DeFi protocols have only launched perpetual products – this enables Contango to enter the space as the market leader in the expirable futures trading space. Furthermore, the onchain transaction volume on DEXs surpassed deposits on CEXs 2021, and this shift is expected to continue as more users move away from traditional financial institutions.

The total cryptocurrency futures market is currently growing, with the majority being traded on centralized exchanges. According to data from TokenInsight Research, the global trading industry continues to grow rapidly, with $112 trillion worth of transactions occurring in 2021 alone. Perpetual swaps make up nearly half ($57 trillion) of this volume, spot trading accounts for 43% ($49 trillion), and futures and options contracts account for the remaining volume of transactions. This amounts to $6 trillion of volume for expirable derivative products - the exact segment that Contango is targeting as a first mover in the DEX space. The potential is clear to see.

Expirable Futures vs Perpetual Futures – The Key Differences

  • Price Prediction: This is an important differentiator, as it means that expirable futures are more predictable than perpetual futures through their fixed interest rates. This means DeFi traders know their exact costs for a position. Meanwhile, perpetual futures have a floating rate, hence traders cannot predict their costs for a position in advance. In theory, expirable futures are less risky than perpetual futures. This makes them more attractive to institutional investors, who are typically risk-averse.

  • Expirable futures can be used to hedge against price fluctuations in the underlying asset. This is because expirable futures always have a known price at which they will settle, regardless of what happens in the meantime. This is in stark contrast to perpetual futures.

In a nutshell, the current market situation and the underlying assets make Contango's solution potentially very attractive to new investor groups, who are typically risk-averse. We are certain there is immense market potential for Contango, and we are looking forward to seeing what they will accomplish post launch.

About Advanced Blockchain

Advanced Blockchain is a publicly-listed venture fund and incubator that was formed in 2017. The organization invests in and scales DeFi protocols and blockchains. It aims to build a vibrant DeFi landscape that prioritizes consumer incentives, enables decentralization and transparency, and fuels innovation and growth.